As one guide to the future, the past tells us that the successful bank of 2030 will have continued to innovate on product and process, but I’d like to consider a new avenue for success – innovating on the ‘promise’ of a bank. Re-imagined in the context of a data economy, the historic proposition of “trust and safety” could give banks a distinctive competitive advantage as more effective data economy custodians and brokers.
There is no doubt that COVID-19 has contributed to a great leap in digitisation. The shift to online sales and service has accelerated (Australian sales have almost doubled as a percent of total sales), particularly across traditional laggard categories (e.g. groceries, medicine) and segments (e.g. elderly). Further, there has been an increase in the ‘knitting together’ of digital and physical experiences – be it in check-in, order and pay at table in hospitality, kerbside pickup for retailers, to virtual events and concerts. In the US, approx. 75 per cent of consumers have practiced some new online shopping behaviour, and, 80 per cent intend to continue it post pandemic (McKinsey).
Continued digitisation of the economy will also create an increasing diversity and depth of new data – and for the bank of 2030, while digitisation will be table-stakes, the utilisation of new data could be an interesting source of differentiation in 2030. When I say ‘utilisation’ this could be reflected in a range of business models, be it: keeping data safe and secure, or accumulating and interpreting data to provide a compelling experience, service, content or marketplace, or by ensuring it can conveniently authenticate and streamline consent and activity. All of these models involve some degree of ‘custody’ and ‘brokering’ of data to third parties, or within that company’s own ecosystem.
Today, three entities capture people’s data at scale: government, global tech and banks. The question for 2030: who can most effectively utilise this data over the long-term?
Governments capture and generate significant data, but in liberal democracies, citizens and governments themselves are wary of their role in collecting and utilising data beyond core services. The Australian Government prefers to influence the use of data through policies like the Consumer Data Right and by selective use of direct interventions as enablers or market signals (eg, Energy Switch NSW). In the narrower scope of areas where a government has an indisputable role to play – e.g. health and security – there are wonderful examples of governments transforming through models of open data and open governance: the Taiwanese response to COVID-19 is perhaps the most remarkable.
Global technology is in the box seat of the data economy. Their business models are built around data capture and utilisation, and their patient capital (and cash reserves) allows them to subsidise a growing array of physical devices and vertical services, which in turn capture more data. Regulation and consumer sentiment are the head-winds. While COVID has further entrenched their dominance in the economy, the ‘techlash’ will grow. At a national level, governments and consumers are increasingly vocal about the lack of competition, tax leakage and division enabled by social platforms. At an international level, it’s also interesting to consider that by 2030 there might be a ‘balkanised’ technology map as the US, EU and China continue to diverge in their policy postures, and adopt protectionism against foreign platforms – most recently reflected in the mooted de-merger of TikTok.
So, to banks. Banks are arguably in better shape to respond to rising consumer and government concerns about data capture and usage.
In Australia, despite the failings illuminated by the Royal Commission, banks remain trusted by consumers to protect their money and data. Many of the resulting reforms (and the shift towards Open Banking) mean that banks are well aware of their obligations as data custodians from a security and privacy perspective. The question is whether they can shift from being just a ‘custodian’ to also being a trusted and effective ‘broker’ that helps customers use their data to access new services, and optimise and protect their digital lives far beyond banking. This is often described as an ecosystem strategy.
Data, machine learning and advanced algorithms, powered by quantum computing, will provide a constantly updated information stream about a person’s financial position, generating insights and advice. The Commonwealth Bank’s Customer Engagement Engine is one example, running more than 400 machine learning models across 157 billion data points in real-time to automate what notifications are most valuable to send. This goes beyond traditional ‘sales and service’ messages, for example during the COVID crisis, the status of loan requests, or saving a portion of a tax refund. It includes coordinating access to a broader range of CommBank’s digital banking features like Benefits finder, which aggregates hundreds of government benefits in one place, CommBank Rewards offering customers cashback on relevant offers, and Bill Sense, which uses historical data to manage and predict upcoming bills and payments.
So the big question for 2030 is whether banks can innovate at the pace and breadth required to build out a compelling ‘ecosystem’ of new services – whether built by the bank, or from a marketplace of partners and affiliates.
Part of CommBank’s approach to this ecosystem strategy was to launch x15ventures – to help build, invest in or acquire ventures, and then scale them through the reach and assets of the bank. What’s a bit different about the approach we’ve taken in x15, is that each venture is allowed to operate with the agility of a standalone business, but has ‘pre-baked’ technology connections back into CBA, so that new ventures can become part of CBA’s broader customer ecosystem.
Since Feb 2020, x15 has launched or acquired five ventures, all of which are relevant to a customer within the context of their bank relationship. For example, CommBank customers who are pre-approved for a mortgage now receive an introduction to Home-in – a fully digital conveyancing solution. With their consent, customers can transfer necessary data to Home-in to sign up and start the process of settling on a contract of sale straight away. Operating independently from the bank allows Home-in to iterate its product and business development rapidly. To illustrate this point, in the eight months of pilot, the Home-in net promoter score has grown – through continuous iterations in product and customer service design – from ~10 to >50 today.
The ecosystem between ventures and a bank can also operate in the other direction – for example, we recently launched a ‘business in a box’ service called Backr (backr.com.au), which we believe is the first service an aspiring new small business owner or entrepreneur should consider – and from there, we provide links and APIs into a range of jobs to be done and services to be consumed, including setting up a business account through CommBank.
To succeed, this ecosystem model requires sustained investment from banks: in the core infrastructure to capture and handle new data safely; in new ventures, affiliates and partners to utilise that data in creative ways; in controls to ensure customers are informed and benefit from the use of their data; and ultimately, in reconsidering long term measurements of strategic success. For example, digital leaders in banks will increasingly think less like shopfronts (i.e. measuring # of visitors and bank products or basket size) and more like platforms – measuring customer engagement, time on site, conversion rates and customer success outcomes (including for affiliates in their network).
It’s odd not to talk about technology when future-casting but while we’re already experimenting with smart contracting, digital ledger services, quantum computing, artificial intelligence, real-time decisionmaking and biometrics – to my mind, these are all really enablers of an underlying product, process or ‘promise’ innovation.
This article was first published in KMPG’s latest report, 30 Voices on 2030 – The New Reality of Financial Services.